Licensing in Construction

To create conditions for Ukraine’s integration with the European Union in the field of construction, the government has to ensure the implementation of the EU – Ukraine Association Agreement provisions, in particular, the introduction of transparency (simplified licensing, permitting, approval procedures in the construction, etc.). The annual doing business ranking conducted by the World Bank takes into account among other things the state requirements for obtaining building permits, company registration, etc.

The licensing of construction companies in Ukraine did not make it possible to assess the most important thing – who is going to work and why this company was established. However, the introduction of certification of the responsible contractor did not abolish the licensing itself. The Law of Ukraine On Regulation of Urban Development still provides for licensing of construction companies that build projects with medium and significant consequences.

Licensing in Construction Before Imposition of the Martial Law

In March 2020, the Cabinet of Ministers adopted two resolutions that marked the beginning of the reform in the architectural and construction control fields. At the same time, the by-laws regulating licensing in the field of construction were cancelled, in particular the Resolution of the Cabinet of Ministers of Ukraine On Licensing of Economic Activities Related to the Creation of Architectural Facilities dated 5 December 2007, No. 1396, and the Resolution of the Cabinet of Ministers Some Issues of Licensing of Construction Projects that in Terms of the Class of Consequences (Liability) Belong to the Projects with Medium and Significant Consequences dated 30 March 2016, No. 256.

There were abolished the licensing body in the field of construction, the list of works subject to a license as well as the procedure and conditions of licensing in construction. Consequently, this blocked obtaining new licenses, updating the existing ones (changing the list of works) and entering the construction market of new players.

Licensing in Construction During the Martial Law

Let’s review the details of simplification of the construction activities subject to licensing in Ukraine in accordance with the Resolution of the Cabinet of Ministers No. 314 dated 18 March 2022 Some Issues of Economic Activity in Martial Law, and the Resolution of the Cabinet of Ministers No. 535 dated 3 May.2022 On Amendments to the Resolution of the Cabinet of Ministers dated 18 March 2022, No. 314. They stipulate that the validity of existing fixed-term licenses and permits shall be extended for the time of martial law and 3 months after its end. If speaking of valid construction licenses, their validity is unlimited. If there is no license, the right to carry out economic construction activities is granted on the basis of a declaration and permits following the list:

Declaration. Submission Procedure

The declaration may be submitted regardless of the declared location or place of business:

• electronically – via the Unified state web portal of electronic services, e.g., via the Diia mobile application;
• in a hard copy – at the administrative services centre (with further transfer to the licensing services authorities via the Diia Portal).

Information about the declaration is published on the website of the licensing authority (DIAM). One may check it following the link: https://bit.ly/3O4HnrA

By the way, in order to enter the Ukrainian construction market, submit a declaration and start working, a foreign company needs to establish a legal entity in Ukraine: a Representative Office and/or a Limited Liability Company, with the parent company as a founder. The list of data to be included in the declaration on economic activity includes:

• for a legal entity: an organizational and legal form, full and short name (if any), identification code in accordance with the EDRPOU (Unified State Register of Enterprises and Organizations of Ukraine), and location, phone number, e-mail, name of the head or authorized representative;
• for an individual entrepreneur: last name, first name, patronymic name, registration number of the taxpayer’s registration card, the series and number of passport, address, e-mail;
• The actual address of business activity;
• The type of construction activity;
• The name of the permit document to be replaced by the declaration for the time of martial law;
• A note “read and understood” the requirements for conducting the business activities subject to licensing, obtaining a document, etc., and an obligation to comply with them.

In the Letter of 2 June 2022, No. 3622-06/32445-07, the Ministry of Economy of Ukraine explained that:

• An economic entity may submit a declaration in any form indicating the information as set out in Annex 1 to the Regulation No. 314. The right to conduct a type of economic activity is gained on the basis of submission of the declaration;
• After entering the information, the declaration is returned to the applicant;
• the Resolution №314 does not provide for any confirmation of receipt of the declaration;
• Since 26 May 2022, there is an option to submit declarations via the Diia Portal.

What’s Next, After Martial Law is Revoked?

Promptly, within three months after the martial law is revoked, an entity has to contact the licensing/ permit issuing authorities and to obtain necessary documents without cessation of business.

Where should apply those who will receive the right to carry out economic activities for the construction of facilities of the CC2, CC3 class of consequences (this kind of construction was previously subject to licensing and at the time of the martial law declaring this procedure was blocked)?  Will there be such a need at all?  This needs additional legislation provisions!

Maybe licensing won’t be back? What is necessary for this?  The complete reform, i.e.:

• To make the Laws On Licensing of Types Economic Activities, On Regulation of Urban Development, On Architectural Activities, On Public Procurement, the Article 91, Article 227 Civil Code of Ukraine, consistent;
• To finalize and adopt the draft laws about the construction reform (for example, on strengthening the responsibility in the field of urban development No. 5877, 5655, etc.);
• Certification of contractors.

What About Certification of Responsible Contractors for the Time of Martial Law?

The list of types of works (services) related to the creation of architectural facilities with the contractors subjected to the professional certification:

• Development of urban-planning documentation;
• Architectural and civil engineering design;
• Expert assessment and inspection in construction;
• Technical supervision;
• Engineering activities in the field of construction in terms of coordination of actions of all construction participants.

The Resolution of the Cabinet of Ministers dated 29 March 2022, No. 384 amends the Resolution of the Cabinet of Ministers dated 23 April 2011, No. 554, i.e.:

“During the martial law, the contractors of certain types of works (services) related to the creation of architectural facilities that have received a qualification certificate before 1 January 2016, and meet the conditions specified in item 2 of this resolution may receive a higher category qualification certificate within five working days from the date of receipt by the self-regulatory organization in the field of architectural activities of a relevant application, followed by the submission of necessary documents and holding of professional certification within two months after the revocation or cancellation of martial law”.

International Experience

In order to make a forecast of possible developments in the construction market, including construction licensing after the revocation or cancellation of martial law, let us analyze the proper intentional experience.

Poland has no licensing of construction companies. Specific requirements apply, however, to individuals who want to carry out so-called independent technical functions in the construction sector. An independent technical function in the construction sector is considered to be an activity relating to:

1. preparing of building design, verification of architectural and building designs and technical designs, and exercise of architect’s supervision;
2. management of construction projects or other construction works;
3. management of the production of structural building elements as well as supervision and technical control of their production processes;
4. carrying out of investor’s supervision;
5. technical control of the maintenance of works.

Any of the independent technical functions in the construction sector referred to in points 1-5 may be performed only by persons holding so called construction licenses (in Polish: “uprawnienia budowlane”) issued by self-regulatory bodies (professional self-governments) called in Poland “Izby Architektów” (Chambers of Architects) and “Izby Inżynierów Budownictwa” (Chambers of Construction Engineers). Such licenses confirm that a person has an appropriate technical education and professional experience, adjusted to the type and level of difficulty of the activity he is allowed to carry out, and that he fulfils other requirements relating to that function. The construction license is obtained after passing an exam confirming the knowledge of construction processes and after completing a required training period.

The permitting procedure in Poland can be divided into three stages:

– confirmation of eligibility and basic parameters of investments;

– obtaining a construction permit (in some cases a notice is enough);

– commissioning of the facility.

The USA set forth the rules, regulations, standards, conditions, and other aspects of building industry regulation in the International Building Code. In terms of legislation the states can rely on this code and issue their own codes (e.g., the California Building Code). The construction license is granted to a specific qualified specialist, and only then it is linked to the company. The licensing process varies considerably from state to state, but most of the states require applicants to apply for a license and pass a qualified party exam. Only a licensed specialist signs each drawing and is liable for inaccuracies, errors or accidents. If this person quits the company, the license shall be re-obtained.

Applying for a general contractor’s license is a rather complicated and time-consuming process. General contractors who provide construction services in several states shall meet the licensing requirements of each state where they operate. In some cases, the states have mutual agreements simplifying the application process for licensed contractors from other states.

Also, in order to start the construction, it is necessary to obtain a relevant permit for construction, expansion of construction, change in construction, relocation, repair, building demolition/relocation; re-equipment, removal of elements of gas, mechanical, plumbing and other systems of a building. The permit is issued by an authorized building official. The building official is a head the Building Safety Department.

Austria has a similar licensing principle applied to an individual. The process of obtaining such a license is much longer and can take over a year. However, revoking a license can be very simple. For example, if no construction work is carried out, or no special advanced professional training is undertaken.

Germany has no licensing procedure for construction companies. General contractors are not subject to any special requirements other than the registration for doing business and operating in Germany. Instead, much attention is paid to the training of qualified specialists and permitting procedures. Although the work of construction professionals is not regulated at the federal level, they may be members of federal or state associations (for example, the Association of German Engineers).

In the Netherlands, the construction contractors are not required to have licenses or other evidence of competence. However, building standards and the building compliance protocol are strictly regulated. The contractor is a member of the guaranteeing organization that undertakes to perform the work on its behalf to the client’s satisfaction if the construction work is less than satisfactory.

Switzerland has no federal licensing requirements for both national and international contractors and construction professionals. However, some cantons have certain requirements for engineers and architects working in these cantons. For example, in the cantons of Vaud, Fribourg, Geneva, Neuchâtel and Ticino, engineers and architects must be registered or authorized in the canton or at least meet certain qualifications to perform certain categories of work. The scope of such work varies but always includes planning and/or applying for a building permit. In the canton of Lucerne, engineers and architects shall have special professional education and training.

Conclusion

To sum up, the trend of transition from licensing to certification is positive, as it gives floor both to state control and simplification of procedures, promotes the integration of the national construction industry into the European economy. We hope that this process in Ukraine will be successfully completed after the martial law, thus, contributing to the fast post-war reconstruction of the state and the restoration of the infrastructure destroyed or damaged as a result of the armed aggression by the Russian Federation, among other things through foreign companies entering the Ukrainian construction market, and simplified business conditions for all players, both national and foreign ones. Therefore, it is necessary to complete the reform of architectural and construction control making the clauses of the laws of Ukraine and other regulations listed in the article by means of finalizing and approving respective draft laws. All stakeholders (the government, policy-makers, builders, lawyers, international partners, etc.) are already actively working in this direction, so we will win and definitely reconstruct everything.

Olena Shtohryn, managing partner, attorney, mediator, Dictio Law Firm